Hammock (173A) FY2026 Q3 Earnings Report

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Executive Summary

Cumulative results for Q3 reflected higher revenue but lower profit, with declining profitability in the core business occurring simultaneously with a boost to net income from extraordinary gains. Revenue was ¥35.6B (+5.5% YoY), Operating Income was ¥4.8B (△11.7% YoY), Ordinary Income was ¥5.1B (△13.2% YoY), and Net Income was ¥4.6B (+6.7% YoY). The increase in Net Income was attributable to ¥0.18B in extraordinary gains, including a ¥0.13B gain on the sale of investment securities, while core earnings power remained below the previous year on an Ordinary Income basis.

Factors Affecting Earnings

【Revenue】Revenue was ¥35.6B, up 5.5% YoY, continuing its growth trend. However, the cost of sales increased at a faster pace than Revenue, causing the gross profit margin to decline from approximately 43.3% in the same period of the previous year to 41.1%. A notable feature was the weakening efficiency of monetizing revenue growth.

【Profit and Loss】SG&A expenses were ¥0.98B, up 7.6% YoY, expanding at a faster pace than the 5.5% revenue growth rate. This negative operating leverage caused the Operating Income margin to decline from 16.1% to 13.5%, with Operating Income at ¥4.8B (△11.7%) and Ordinary Income at ¥5.1B (△13.2%). Meanwhile, Net Income increased to ¥4.6B (+6.7%) due to ¥0.18B in extraordinary gains, including a ¥0.13B gain on the sale of investment securities. The structure was one in which extraordinary gains offset the decline in core earnings; therefore, the overall conclusion is higher revenue but lower profit.

Key Financial Indicators

【Profitability】The 13.5% Operating Income margin declined 265bp from 16.1% in the same period of the previous year, while the gross profit margin also declined by 211bp to 41.1%. Although the Net Income margin was 13.0%, it included ¥0.18B in extraordinary gains; accordingly, recurring earnings power must be evaluated based on the Operating Income margin and Ordinary Income margin (14.3%).【Cash Quality】The ¥0.13B gain on the sale of investment securities accounted for approximately 28% of Net Income of ¥4.6B, indicating a high degree of dependence on temporary factors.【Investment Efficiency】Annualized ROE was high at 20.6%. However, based on a decomposition comprising the Net Income margin, financial leverage of 2.21x, and total asset turnover of 0.72x, ROE was supported more by the high Net Income margin and leverage than by asset efficiency.【Financial Soundness】The Equity Ratio was 45.2%, the current ratio was 210.1%, and the quick ratio was 210.0%. Cash and deposits of ¥44.3B accounted for 67.0% of total assets, indicating a robust short-term financial foundation.

Cash Flow Analysis

As individual items in the statement of cash flows have not been disclosed, cash trends are analyzed based on changes in the balance sheet. Cash and deposits increased 39.9% YoY to ¥44.3B, reaching a level equivalent to 67.0% of total assets. Accounts receivable declined 32.8% to ¥0.25B, while accounts payable declined 28.7% to ¥0.14B. The reduction in trade receivables contributed to the increase in cash, whereas the decline in trade payables had the effect of generating a cash outflow. Contract liabilities were ¥1.84B, accounting for 78.0% of current liabilities, with a prepayment-based funding structure supporting the cash balance. Software under development increased 58.4% to ¥0.297B, providing an indication of one use of funds through investing activities.

Earnings Quality

Net Income of ¥4.6B included ¥0.18B in extraordinary gains, the majority of which consisted of the non-recurring ¥0.13B gain on the sale of investment securities. Ordinary Income was ¥5.1B, down 13.2% YoY, and the ¥0.18B difference from Pretax Income of ¥0.69B was almost entirely attributable to these extraordinary gains. Non-operating income was ¥0.03B, consisting of ¥0.02B in interest income and ¥0.01B in foreign exchange gains, and was small in scale. Accordingly, the 6.7% YoY increase in Net Income did not reflect an improvement in recurring earnings power, but rather a high degree of dependence on the temporary factor of securities sales. In assessing the profitability of the core business, priority should be given to the declining trends in Operating Income and Ordinary Income.

Earnings Forecast and Guidance

Progress toward the Full-Year forecast was 69.5% for Revenue, 55.2% for Operating Income, 57.0% for Ordinary Income, and 74.0% for Net Income. While Revenue is progressing generally in line with expectations, progress for Operating Income and Ordinary Income was approximately 18–20pt below the standard Q3 progress rate of 75%. Achieving the Full-Year Operating Income forecast of ¥0.87B (+10.0% YoY) will require approximately ¥0.39B in Operating Income in Q4, substantially above the average quarterly Operating Income of approximately ¥0.16B for cumulative Q3. Progress of Net Income at 74.0% is relatively high, but because it includes a boost from extraordinary gains, the degree of recovery in core business profitability in Q4 will be key to achieving the plan.

Shareholder Returns

The Q2 dividend was ¥0 per share, while the Full-Year forecast annual dividend is ¥40.0 per share. Based on forecast EPS of ¥148.91, the Payout Ratio is approximately 26.9%, a conservative level on an accounting profit basis. Against a funding base comprising retained earnings of ¥2.78B and cash and deposits of ¥44.3B, the forecast annual total dividend amount (approximately ¥0.168B) is sufficiently covered. There is no data regarding the implementation of share buybacks; accordingly, this report states only the Payout Ratio.

Risk Factors

1. Declining core business profitability: While Revenue increased +5.5% YoY, the gross profit margin declined by 211bp and the Operating Income margin declined by 265bp, resulting in an 11.7% decrease in Operating Income. If the increase in SG&A expenses continues to outpace revenue growth, achieving the Full-Year Operating Income forecast will become more difficult.

2. Risk of Q4-weighted earnings achievement: Progress toward the Full-Year forecast was 55.2% for Operating Income and 57.0% for Ordinary Income, substantially below the standard 75%. Achieving the Full-Year plan will require a significant accumulation of profit in Q4.

3. Dependence of Net Income on temporary gains: Extraordinary gains of ¥0.18B, including a ¥0.13B gain on the sale of investment securities, boosted Net Income for the period. As core-business Operating Income and Ordinary Income declined, the 6.7% increase in Net Income may appear to exceed recurring earnings power.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (it_telecom)

Profitability and Returns

Both the Operating Income margin and Net Income margin were substantially above the industry median, placing profitability in the upper tier of the industry.

Growth and Capital Efficiency

The Revenue growth rate was below the industry median, positioning the company at or below the middle of the industry in terms of growth.

※Source: Company analysis

Key Points from the Financial Results

1. The Operating Income margin of 13.5% and Net Income margin of 13.0% were above the industry median, but both declined from the same period of the previous year, primarily due to the decline in the gross profit margin and SG&A expenses growing faster than Revenue.

2. Progress toward the Full-Year Operating Income and Ordinary Income forecasts was 55.2% and 57.0%, respectively, below standard progress levels. Recovery in the profit margin in Q4 will be an important point to monitor for achievement of the Full-Year plan.

3. The increase in Net Income depended on extraordinary gains, including the gain on the sale of investment securities, and must be evaluated separately from the recurring earnings power of the core business.

Theoretical Share Price (Reference Value)

Sensitivity: ¥930–¥986 at ±1% for the cost of equity, and ¥951–¥967 at ±0.1 for ω.

Notes:

• Net assets as of the quarter-end were used (there is a timing difference from the Full-Year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated solely from publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not forecast or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI through analysis of XBRL earnings summary data. It does not recommend investment in any specific security. Industry benchmarks are reference information compiled by the company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting with a professional as necessary.

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